Silver just had the steepest drop in 40 years
from 120 down to about 78. And most investors have
no idea what that means. Some people are calling it the buying opportunity of
a lifetime. Others are saying it's a warning sign that industrial demand
is collapsing. and that the global economy is slowing, and that silver is
just the first domino. So what is it? Is it the bottom? Or
is there more pain in the silver and metals markets ahead? You
see, silver doesn't crash like this without a reason. If
you don't understand why it's happening, then you're going to make the wrong decision.
And in this video, I'm going to show you exactly why silver tanked, what
the data says about where it's headed next, and whether this is an asset you
should be putting your money behind. I'm Lloyd James Ross, seven
figure investor and entrepreneur and I've helped thousands of business owners and
professionals turn financial stress into success. If
you're stuck in old money habits, overwhelmed by investing or unsure where
to start, this is for you. I'll give you the mindset and
strategies to take control, grow your wealth and achieve financial
freedom. It's time to make your money work for you. All right. Firstly,
where are we right now? What's happening in the metals market with
silver and gold? I'm going to take you through some numbers. I'm going to explain to
you what it's all about and how it impacts you. Let's
get the numbers on the table right now. As of right now, one, gold
is around just a bit over $5,000 an ounce and silver is around $80 an ounce. Gold
has been up massively over the last year. I mean,
we're talking like 70%, which it's
crazy thinking about how fast assets move. It's
a huge move in gold, all right? And everyone, of course, becomes a
gold bug. You can see big lines down at the bullion shop in Sydney, people
lining up to get gold. I'm not sure why, but
of course, it's for fast money. It's the jackpot money mindset I talk about in that book
as to what's causing that. But it sounds like
it's not a slow and stable store of value. It seems like
it's turned into a speculative something-something, right?
Does it sound like it's a crowded trade to you? It
seems like it is, because if there's lines of people in Sydney looking
to get gold bullion, it seems like we're at a bit of a bubble here. So
why the market went crazy? Here are the real drivers behind the
insane gold and silver run. One,
US dollar weakness and yields. So when the
US dollar weakens, and it's caused by the fact, here's how
the US dollar weakened. Of course, everybody knows that there's a lot of cheap money
pumped out. Everybody knows that there's fear of the US
defaulting because it's $38 trillion in debt. Everybody is aware of
this. But here's what happened. Donald Trump. wanted
Chairman Powell, who's the chair of the Federal Reserve, to cut rates
during full employment, steady price. So
that means inflation steady and down. He wants Powell to
cut rates, right? But Powell doesn't want to. He wants
to keep rates steady, higher, which is what's happened in the United States. Is
Trump right? Maybe. Is Powell right? Maybe. It's
hard to tell. But what has happened, too, since then is that Trump
has been jawboning to get rid of the Federal Reserve
and replace him with Kevin. There's two Kevins that were up for nomination. He's
chosen a Kevin. And he's going to come in. Now, everyone
anticipated and thought that Donald Trump is going to basically influence
the Fed chair to cut rates during a time where
the United States GDP growth is around 5% to 6%, which is huge. Now,
that's not a good time to cut rates. But everyone thought that so
they thought, well, Donald's definitely gonna do that. That's why he's bringing a new federal chair, right
for the Federal Reserve. But so that said, they're like, you know what,
there's gonna be cheap money everywhere. So the US dollar weakens. That's what
happened. And gold tends to catch a bid because it's a non
yielding asset, and the opportunity cost drops. Okay, basically, when
cash and bonds are less attractive, capital moves into gold.
That's what's happened. They're fearful of the money becoming
worth less. Meanwhile, China has been buying a ton
of gold. So the demand is also really high. A lot of demand for
gold and also the people saying, well, the currency is going to
be worth nothing. The narrative, the story. is what
happens, right? So a big part of the gold narrative is rising stress in
the US debt dynamics and the declining trust in the dollar
asset. And that's been the core pillar of the bull market
in gold and silver, right? And the other
driver is the central bank So governments like
the US and other central banks like China, they're going
after gold, okay? So the demand is what's also pushing prices higher.
On the silver side, it's structural supply issues and a deficit in
the silver supply that's actually causing the narrative. So silver has
got its own fuel. There's been talk of structural deficits, heavy investment
demand required to get more silver out of the ground. Huge volatility, and
that's what caused this massive sharp move in silver, like extreme levels.
Like $120 an ounce, it is huge, right? So the metals
didn't rise because everyone suddenly became responsible investors.
They rose because macro conditions created a fear trade.
That's what it is. Gold and silver is a fear trade. Probably
more so gold than silver, alright? So let's look at what's happened in
the past when this has happened. Gold and silver have done
this before. Here's some examples in the gold bull markets of yonder
year. The 1970s, inflation, which is kind of what's happening at
the moment. The oil shocks that happened from the oil embargo in the 70s.
And a lot of dollar weakness. Gold ran hard. So we're almost repeating the
1970s when Paul Volcker was the Fed chair. And
as a result of that, interest rates went up to 17%. It happened
again. So yeah, it's more of like
an inflation shock that's causing this and
dollar weakness. Same as the 70s. 2001, 2011, dollar issues, crisis
era, another major multi-year bull run. Silver bull examples,
1979 to 1980. The biggest, one
of the biggest ever, silver spiked, then collapsed violently. In fact, I'm
pretty sure it collapsed in 1980, pretty sure, by
63% in a day. And that's why I don't touch the metals. But 2008, 2011, a
major crisis around money. So what we're seeing in the past is that anytime there's
this rhetoric, this narrative around weak, cheap
fiat money, US dollars weakening, we get a fear trade
into gold and silver. And that's what's happened, right? So the point is
that metals never just go up. The point is that metals historically go
up in waves based on a story and then they
punish late buyers, like punish. Could you imagine losing
60% of your wealth in silver in a day? And this will happen time and time
again. So will it happen again? Of course it will. Are you kidding me? Of course. So
if you're seeing massive bull runs in gold and silver, and you're seeing
people line up around the bullion shop to buy, and you're seeing people talk about it all the
time, it's probably the top. And will you lose money? You
probably already lost money from the silver. I shouldn't laugh, but it's
a little bit amusing because if you understood, if you watch this channel for long enough, if
you wouldn't want to play in this area, right? And that's why I don't touch that
stuff. It's just so unpredictable. So now let's talk about the punch in
the face. Gold had a brutal fall right after Trump
named Kevin Walsh, which is one of the two Kevins he nominated. So Kevin Walsh comes
into the Fed chair. He's the next one coming in. And the market, this
is why it collapsed. Gold was pumping because of the US cheap
dollar narrative, like, oh, the US dollar is disappearing. That's the narrative. And
here's what happened. Kevin Walsh gets picked. And the market
interprets it as, actually, if you look at his record, he actually
likes to increase interest rates. Boom!
All of a sudden, in a day, it's like, uh-oh, this guy's going to increase rates.
That means there's less cheap money. That means the US dollar is probably going to gain strength. Oh,
shivers. And then gold plunges 10% in a single day, late Jan.
Silver falls 27% in the same set, 27% in a single session. One
of the biggest recorded drawdowns ever. Like trillions
moved, trillions of dollars. So if
it's a safe haven, like how can it drop 10% in a day? How safe is
it when positioning is crowded? Just quickly, if you're ready to take control
of your finances but feel stuck on where to start, I have a
solution. My book, Money Buys Happiness, simplifies investing
and wealth building with practical steps to help you achieve financial peace.
Get your copy via the link in the show notes and let's get your money working for
you. Now back to the episode. So here's what I want to talk to you about and
explore this with you. So you have a bit of an anchor or something to
understand the price moves of gold. So you know if you're getting like, this
will keep you out of trouble. Okay, if you're gonna play there, here's some rules, right?
Here's the gold and silver to oil ratio. And
this is why I believe metals are still gonna fall because
of this ratio. So this will help put some bumpers
on your metals investments, if that's something you wanna participate in,
right? And here's what most people don't understand or ignore, right? Gold
doesn't move in isolation, it moves relative to other real
assets. Fact. So here's one of the key lessons, the gold
to oil ratio. How many barrels of oil, which
is the most productive commodity in the world, how many
barrels of oil equal one ounce of gold? This is the gold
to oil ratio, right? Historically, the ratio has often sat around
the mid-teens. So around 15, okay?
So that means 15 barrels of oil will buy
an ounce of gold. Does that make sense?
So 5,000 roughly goes into, what was it, 60? Yeah, we're
looking at like, it's a lot more. It's not 15. So
you can understand where I'm going with this, right? So does it does this
make sense to you? 15 barrels of oil will buy an ounce of gold.
So since the 1980s, it's typically traded in a broad range between
six and 40. So it just oscillates, yeah, with extreme spikes in
either direction. And that's what you have to understand. Where are we in that ratio? Okay.
So if we look at The extreme valuation of
The usual is 15, we're at 80. So if you think about that,
if that's the case and 80 was going to be steady, 80 barrels, all
we have to do is take 5,000 an ounce divided by $60 a
barrel. So right now we're at 83, literally. As I record
this, we're at 83 barrels of oil per one ounce of gold. Now normally it's
15. So if we take 5,000 divided by 15, $333 is what oil has to get to for that ratio to balance out. Does that
make sense? So if oil is at $333 a barrel, we'll be at the 15 to 1 ratio. So
either oil has to, divided by 63, either
oil has to 5x from here, which would pretty much kill
the economy. Oil, yeah, ain't no one be driving petrol
cars at that point. 5x, that's what has to happen, or
gold must fall. Now what I've experienced in my life, and
you may take this as a bit of a gold nugget of wisdom, I hope you do, because
I learnt it and I'm like, that's helped me so much in my life, is this. The answer
to these difficult questions is typically found in the middle somewhere, okay?
So if we can say, well, what's going to happen? Well, what if it's in the middle? What if gold falls
to, say, $3,000 an ounce and oil dries
up to $200 a barrel? Yeah? We're back at $15. Look
at that. Dead on $15. I just did that quick sum on my phone. $3,000 an ounce
of gold and oil at $200 a
barrel. We're back at the ratio. So one or two things can happen. Oil
may go to 200 and it probably will. And Warren Buffett's also said that,
which is likely because there's a huge structural undersupply in oil. I've done
episodes on this before, so go back and check out my oil episodes. And
also gold will fall. So I'm anticipating gold will come
down from 5,000 ounce down to 3,000. And I can't wait to
do an episode on that because I'm pretty sure that's going to happen. And
it's going to show you that this show is not just about entertainment
and education. It's actually about, you know, we know what we're talking about here a little bit too. I'm
using data to help you understand this myriad of
difficulty in the financial world. You can see it very clearly, oil
is going to go up. And you can see it very clearly, gold is stretched. And
so some of these things in politics start to play out in real
life, right? So oil is a catalyst that can push it up. It'll
start to shift, all right? So here's the logic. If oil rises, the
ratio normalizes, and gold will probably come
down, okay? It's a combination of the two things. So what does that mean for
you? Well, here's the summary of this. Here's why I'm
doing this episode. Obviously, my view is that oil is a stronger trade,
and you can buy wonderful companies at great prices that you can make money
from that are very predictable. On the opposite side, it's
very unpredictable to play in gold and silver. Very. Okay. I
don't buy gold or silver for that reason that it's actually very difficult
to understand or plan what's going to happen. Okay. Not because they can't go
up and so forth, but because I want consistency to be able to build
wealth over time, right? There's no cash flowing metals. I want assets to
produce something while I'm waiting for the value to go up. I want earnings, dividends, rental
income, free cash flow. That's what I want. And you should want that too. Gold and silver
produce nothing. You need to pay someone else or
you need someone else to pay more for it to go up. That's not a compounding machine.
Metals are the greatest fear cycles, right? They're not great for compounding wealth
because over decades, they just go up and down with
uncertainty. Volatility is completely underestimated. People call
gold safe, but you just watch it drop 10% in a day, right?
So I'll give you a real example of how it can impact people's life. This topic of
gold, how people can get sucked into the narrative out of fear
and how it can actually have a consequence in their personal finances, right? So
I've had a few students of mine ask me recently, they've said, Lloyd, Should
I buy gold or silver because everyone's gone crazy for it and they're lining up That's the
first question and I've had another one say hey, I actually hold this
it's gone up 40 or 50% What should I do? Right and
so there's two things happening People are getting seconded or
seduced into it without knowing and those who have participated
in the boom the jackpot Unknowingly and they don't know how they made the
money now. They're stuck and So you can see here very clearly, you're
damned if you do and you're damned if you don't. So that's why I just do not touch
it. Does that make sense? It'll be
an unwinnable game. So if you want
to trade the fear cycle, trade it in real assets. I know
that no matter what happens in the economy, people are going to come into my laundromat and
want to wash their clothes and they'll pay me. I know in a real economy and
no matter what happens, railroads will have to move stock. I
know in any economy, people will need oil. I know in a real economy, they'll
need healthcare. There's certain businesses that you just want to be a part of and
certain assets you want to be a part of. I even, I know I beat up real estate a lot because
I don't like buying it when it's overvalued, but even shelter and real estate is a good asset
in the worst of times because it's solid. It's
not going to evaporate and it doesn't drop 70% in a single day. So
this is how it can affect you. So I hope that makes sense. The questions are
coming out from various students of mine because it's on everyone's mind.
It's a hot topic. And I would say if you don't understand the rules, don't
play the game. So just based on that, you know where I
stand. If you own gold or silver and you're like, what
do I do with it? It's a fair question. I can't give you any advice. But
I would say is don't play in games where you don't understand the
rules. So I hope you can take this episode and the data I've shared
with you as to where it will go, what will happen, and how I think about it.
And I anticipate and hope that this will give you some level of education as
to what you're playing in, why you're playing in it, and whether you should
be or not. So I hope you've enjoyed the episode. It's a shorter one. Leave
me a comment below. Are you an investor in gold or silver? Do you agree with me?
Do you disagree? Where do you stand on this topic? I'd love for you to leave a comment,
and we can come and debate in the comments. Hit the subscribe button, and I'll see you in the next episode. Thanks
for listening to Money Grows on Trees. If you enjoyed the episode, leave a
five-star review on Apple Podcasts and Spotify and subscribe
to us on YouTube so you never miss an episode. And if you're serious about
building wealth, make sure to check out the links in the show notes and follow me
on all social media platforms at LloydJamesRoss for